Bankruptcy has strict rules about what can and cannot be done with personal residences. Please keep in mind that these are general guidelines and the right choice for you is not necessarily what you think it is. That’s why you need an experienced attorney to represent you.
What is your primary residence?
In California your primary residence is the place you live when you file for bankruptcy. Bankruptcy has special rules for primary residences, and this guide offers some basic advice for what we bankruptcy lawyers can do for you, to help protect your home.
If you’re current on your home, but need help with your other debt
This is a situation where you have been making payments for your home, but you have fallen behind on payments you owe others. We (bankruptcy attorneys) can file for protection under either Chapter 7, 11 or 13, depending on your circumstances. Each Chapter has its advantages, but they will all allow you to keep your home while reducing or eliminating your other debt. Because you are current on your home and presumabily will stay current, there would be very little risk to your home. CAUTION: Please remember that depending on the amount of equity in your home, and other related factors, your home *could be at risk*. That's why you should consult with an experienced bankruptcy attorney before making any decisions.
If you’re behind on payments for your home
This is a situation where you have been making payments on your home, but at some point you stopped. Whether or not you have other debt is irrelevant to the anaysis of what can be done for your home. We (bankruptcy attorneys) can file for Chapter 11 or 13 to cure your arrearages. This allows you to catch up on payments over a three to five year period while simultaneously reducing or eliminating your other debt. Unfortunately, since the enactment of BAPCPA in 2005, we cannot FORCE the bank to modify the loan in any other way, although non-bankruptcy remedies are still available.
If your home is about to be foreclosed on
The good news is that we can file for relief under either Chapter 7, 13, or 11 of the Bankruptcy code. Once you file, the foreclosure has to stop. There are some issues that must be dealt with. For example, under Chapter 7, the bank can lift the automatic stay protection and continue with foreclosure relatively quickly. So this is not a good idea when trying to save your home. Under Chapters 11 and 13, it's a different story. You may be behind on payments, but Chapters 11 and 13 allow you to cure arrears, so courts are more hesitant to lift the stay.
What if you owe more on your house than your house is worth?
This is one of the major benefits of filing for relief under Chapter 11 or 13 of the bankruptcy code, the ability to remove liens from your property. Suppose your primary residence is worth $200,000 with a first priority deed of trust in the amount of $250,000 and a second deed of trust in the amount of $50,000. Under this scenario, should the court agree that the residence is worth $200,000, the second deed of trust is completely undersecured. Using a lien avoiding motion in Chapter 11 or 13 can remove the 50,000 lien and make it an unsecured debt which is usually not paid back in full and paid without interest.